startups-make or Break
Why some startups succeed and others fail? A question every wannabe to seasoned entrepreneurs to VCs ask often times. The answer is not that simple, a combination of factors make a startup or break it
An old adage might serve as an inspiration for all the startups. It says, “Rise and rises again until lambs become lions”. As always, feelgood quotes are like sugar quoted pills – once the motivational sugar dissolves, the realities kick in. The last couple of years, the entrepreneurial bug has hit the Indian shores big time. Buoyed by the eCom boom the air is riddled with startups, but a good deal of start-ups just creates a buzz and goes into oblivion. While we see enthusiastic debates and conversations from both the Government and the VC community, time is now for us to ask the critical question- why some startups fail and some succeed? STARTING PROBLEMS At the fundamental level, a broader answer would border
on perspectives like a failed startup tracing its etiology to the founders’ inability to draw up a short-term and longterm sustenance road map or a lack of vision and mission statement. For instance, we have heard stories of many startups fizzling out in just 12 months, either losing the initial capital pooled in by founders or losing the investor confidence.
Quips Rajeev Agrawal, CEO, Innoviti Payment Solutions, “In my opinion, the two most important attributes that define startups success relates to focus on gross margins and customer orientation. Irrespective of the size or the quantum of funding, if the business model does not factor in the gross margin, then it’s a flawed model. This is one area lot of entrepreneurs miss out on. Second, one need to have a solid customer orientation, any disconnects here will not augur well.”
A Deal Street Asia observation sometime back said, “There is hardly any systemic data on startups in terms of how well they are doing and how do they compare”. What it leads to is the lack of success benchmarks or one is constrained when it comes to the appraisal of the startups for lack of key measurement parameters.
A LetsVenture- Axilor survey (a survey was done with 532 early stage startups — between 18 to 24 months old) revealed that “75% of startups that are still in ideation or beta, believe that funding is a primary challenge when they should actually be spending time on customer validation. About 80% said a funding round would be a major milestone, again showing an oversized focus on funds before they’re ready for it.”
More perplexing is that the survey pointed out: “About 70% of founders said they founded a startup because they thought it was an interesting idea or they had a problem or knew someone who had a problem that needed to be
In my opinion, the two most important attributes that define startups success relates to focus on gross margins and customer orientation. Irrespective of the size or the quantum of funding, if the business model does not factor in the above, then it’s a flawed model. — Rajeev Agrawal, CEO, Innoviti Payment Solutions
More than 90% startups in India fail in their first 5 years. Lack of pioneering innovation (77%) is the topmost reason for the failure of most Indian startups
If I ponder over the question - Why some fail, one of the major reasons why startups fail is because there is no market need or the product is mistimed. Poor customer demand means that sustenance becomes a major challenge. — Srividya Kannan, Founder, Director, Avaali Solutions
solved, without prior experience of startup operations. Just 18% of founders said they had worked on a similar problem before.”
Srividya Kannan, Founder, Director, Avaali Solutions says. “If you look at the success factors, the key thing is about value. Startups are all about adding value to the customer either in the form of solving a current or likely problem or driving experiences. Testing and validating via customer adoption early-on is, therefore, a critical success factor. Startups that succeed, focus on customer on-boarding early in their cycle vs. say simply focusing on raising funds and then testing waters. Another sine qua non is to onboard a great team who are passionate about the story and drive business and customer satisfaction very vigorously. Managing finances is equally important – ensuring that the balance between costs and revenues
is always tilted positively is very important. This means keeping a close eye on cash flows as well as profitability.
“If I ponder over the question - Why some fail, one of the major reasons why startups fail is because there is no market need or the product is mistimed. Poor customer demand means that sustenance becomes a major challenge. Some other factors include not having the right team, running out of cash and lack of a sound monetization strategy, “adds Kannan.
WHEN THE RUBBER MEETS THE ROAD
A lot of factors contribute to a startups success. An interesting IBM Study titled “Entrepreneurial India’ last year revealed some interesting insights. This entrepreneurial study conducted by the IBM Institute for Business Value (IBV) based on a survey done in collaboration with Oxford Economics, to understand the rapidly evolving India startup ecosystem and its effects on the wider economy. The results revealed that startups can exploit a range of attributes and advantages unique to India. More than 76% of Indian executives pointed to India’s economic openness as a major business advantage, while 60% identified India’s skilled workforce and 57% of the executives said that India’s large domestic market provides significant advantages.
The Key findings of the survey revealed that more than 90% startups in India fail in their first 5 years. Lack of pioneering innovation (77%) is the topmost reason for the failure of most Indian startups. India’s economic openness (76%), skilled workforce (60%) and large domestic market (57%) seen as major business advantages for startups. Around 73% of Indian business leaders surveyed believe that ecosystems can help accelerate innovation.Almost 80% of executives from established companies say collaboration with startups accelerates new ideas Stakeholders’ (established businesses, startups, VCs, Government, Higher education) involvement and contribution is key to creating a conducive environment for the success of startup economy The IBM study is based on interviews with more than 1,300 Indian executives, including 600 startup entrepreneurs, 100 venture capitalists, 100 government leaders, 500 leaders of established companies and 22 educational institution leaders to analyze the macro impact of startups on the economic growth of the country. The study further focuses on how more proactive engagement between startup and established organizations can help startups harden their business models, accelerate growth and leapfrog into the big leagues while enabling established companies to share in the entrepreneurial spirit of innovation and agility. Their mutual success will drive India toward an evermore dynamic future. The study also said that the Startup activity is driving India’s emerging business ecosystems India’s startup community is expanding rapidly with a strong entrepreneurial culture, especially among millennials. Strong government promotion of entrepreneurship has strengthened a rapidly evolving startup culture – a proposed reduction in corporate tax from 30% to 25% is expected to further boost startup activity. The study
further stated that market valuation of Indian startups has grown significantly over the past four years, with three times increase in startup investment recorded in 2015. According to the study, approximately 35% of startups are being set up in tier two and tier three cities, thereby promoting accelerated development and industrialization of rural and other less developed areas.
Clearly, the Indian startup ecosystem is at an intersection, the much-needed coming of age has to happen- the boys to men transition. The oft-repeated clichéd success stories like Flipkart or OLA or Snapdeal or handful of such examples no longer hold good. They cashed in on the first round of opportunity and leveraged in on the early mover advantage and rock solid investor confidence.
So as we gather the random pieces of failed and success stories, we can say that the vision and the mission are lacking in many startup ventures that are bound to fail in time. And moreover, if the founders lack the multi-domain expertise and depend on hires to jumpstart their startups, they are asking for trouble. For instance, if you are an app startup, founders must have hands-on expertise in coding, sales, and marketing. The founders are the visionaries, who need to build the foundation brick by brick and create a solid structure that seamlessly meshes with one great idea into a well-knit business model that monetizes the whole idea.
Clearly, the Indian startup ecosystem is at an intersection, the much-needed coming of age has to happen - the boys to men transition. The oft-repeated clichéd success stories like Flipkart or OLA or Snapdeal or handful of such examples no longer hold good